Decisions, Decisions

Unit of One

By
Anna Muoio

Stripped down to its essentials, business is about one thing: making decisions. We're always deciding something - from the small and the daily (which emails to answer, what meetings to have) to the macro and the strategic (what product to launch and when) to the intensely personal (what job to take, whom to hire, whom to marry). But what does it take to make a "good" decision? Is it about going by facts and percentages - or about following your gut instinct? Does time produce better decisions, or does pressure make you decide not only faster but also more wisely? And finally, is better decision making something that you can learn? We asked 11 decisive leaders, inside and outside of business, to answer these and other, related questions. Does their advice help? You decide.

Ed Koch

To make good decisions, you need confidence in your judgment. We all make bad decisions, but the important thing is not to worry too much about them. Otherwise, you'll never do a thing. I was mayor of New York City for 12 years. I had a $28 billion budget. Each decision I made affected seven and a half million people. The stakes were high. I had to show confidence - in particular, confidence in my decision-making ability - because a lot of people had put their trust in me. The worst decision I ever made was to run for governor of New York State in 1982. I did it on a lark, and it was stupid. Thank god the people of New York had enough sense to understand that I didn't have my heart in that race - and to vote against me. They did the right thing, and I was happier because of it.

As a judge, I have to decide on the credibility of two people standing before me. I don't know who is telling the truth, but I know that one of them is lying. That's when making decisions gets sticky. Sure, the law helps me make such decisions. But there have been many times when I've had a hell of a time deciding. Even so, I never base my courtroom decisions on gut instinct. I go by the evidence - or the lack of evidence - and by the applicable law.

Ed Koch was mayor of New York City from 1978 to 1989. Today he writes a weekly column for the New York Daily News, has his own radio talk show, and is the judge on the television program "The People's Court."

Pamela Lopker

Chairman and President QAD Inc. Carpinteria, California

I make bad decisions all the time. But I've been successful because I've developed a process for identifying and changing those decisions quickly. I approach every decision with an eye to the long-term outcome. That's a hard method to adopt in a fast-paced business environment. But it's the only way to create sustainable value on either a professional or a personal level. The quick-fix method that I see so many companies rely on is just that - a quick fix. There's a big difference between investing heavily in marketing the product that you have today - with no sense of what it takes to survive tomorrow - and investing heavily in R&D today so that you can have tomorrow's product.

Even in my personal life, I looked at decisions from the perspective of what's going to be better for me over the long term. When I was in college, I needed to decide on a career path. While most of my peers were concerned with following their passion, with doing what they "loved" to do, I was looking for a career that would support me financially over the long run. Sometimes making important decisions is just a matter of asking some basic questions: What are my skills? Where is a certain industry going? What should I be doing now to get to where I want to be later? Because I was always strong in math and in analytical thinking, I figured that I would do statistical or actuarial work. Then I realized that statistics wasn't a booming industry. Computer science seemed like a better long-term bet, so I changed my major.

As a leader, I try not to make decisions for others. Sure, being a dictator is often the fastest way to get things done. But it's not a process that allows an organization to sustain growth. I want the people in my organization to learn the lessons that come with making decisions: that everything is a compromise, that nothing is ever completely logical, but that you can deal with things through a logical decision-making process.

Pamela Lopker has been called America's "richest self-made woman." QAD, a $172 million enterprise resource-planning software company, is one of the 30 largest public companies to be led by a female CEO. Its clients include Avon Products, PepsiCo, Ford, and Johnson & Johnson.

W. Brian Arthur

Citibank Professor Santa Fe Institute Santa Fe, New Mexico

I received my PhD in operations research, which is a highly scientific, mathematical way of strategizing and of making decisions. I once thought that I could make any decision, whether professional or personal, by using decision trees, game theory, and optimization. Over time, I've changed my mind. For the day-to-day work of running a business - scheduling a fleet of oil tankers, choosing where to open a new factory - scientific decision theory works pretty well. But for just about every other kind of decision, it doesn't work at all.

For the big decisions in life, you need to reach a deeper region of consciousness. Making decisions then becomes not so much about "deciding" as about letting an inner wisdom emerge. We've been bamboozled into believing that cognition is rational - that our mind is a gigantic computer, or a blackboard on which we can reach a decision by calculating pluses and minuses. Recent research on cognition shows that our minds rarely make strictly logical deductions. Instead, we rely on patterns - and on feelings associated with those patterns.

So for those big decisions - Should I marry this person? Should I follow that career? Should I sell my company? When should we go public? - let patterns develop in your mind. Let clues and evidence emerge from your environment. This approach to decision making requires time, patience, and another key ingredient: courage. It takes courage to listen to your inner wisdom. But once you hear that wisdom, making a decision becomes fairly easy.

W. Brian Arthur's work on the economics of increasing returns and their role in technology-based industries has won him international recognition in the scientific and business communities. He is a pioneer of the new science of complexity and the author of The Economy as an Evolving Complex System II (Addison-Wesley, 1997).

Chung-Jen Tan

I've learned a lot about decision making by watching how a machine plays chess. In 1996, Deep Blue played Garry Kasparov, the world chess champion. Deep Blue won the first game but lost the match. That experience taught us what we needed to do to be ready for the rematch in 1997.

A human uses a combination of knowledge, strategy, and intuition to make chess decisions. A machine relies on brute computational power and on an ability to examine a tremendous amount of data. On average, the human mind can manage three or four positions per second. Deep Blue can evaluate 200 million alternatives per second. So the machine has a huge advantage. But Deep Blue also had weaknesses, and they centered on its inability to be flexible. Our challenge was to equip Deep Blue to make decisions like a human grandmaster.

We built in several programming tools that allowed us to adjust some of the decision parameters dynamically and to change strategies in between games. Joel Benjamin, the U.S. chess champion, played chess with Deep Blue for nine months - testing and tunneling the system - and we programmed some of his knowledge into the computer.

An interesting thing happened when Deep Blue met Kasparov for the rematch. While we had refined Deep Blue so that it could make decisions and play more like a human, Kasparov had refined his strategy so that he could play better against standard computer-chess programs. In game six, Deep Blue surprised Kasparov by sacrificing a knight to gain strategic advantage. Kasparov, who hadn't planned for such a decision, realized how inflexible his own strategy had become. We showed that a machine can reach a level of play comparable with that of a grandmaster.

Chung-Jen Tan manages IBM's Deep Blue computer-chess project. Since 1984, Tan has worked on the architecture development and machine design of highly parallel, scalable systems for solving large, complex problems.

Deborah Triant

Making and implementing decisions boils down to a key ingredient: listening.

I often wonder why schools emphasize debating. Why not have listening classes as well? Debating is easy; listening with an open mind is not. The worst thing that you as a leader can do in the decision-making process is to voice your opinion before anyone else can. No matter how open and honest your people are, stating your opinion first will short-change the discussion process and taint what you hear later. I've learned this the hard way.

There are two classes of decisions. The first is the easy kind. For instance, how do you choose which features to include in the next release of your product? It's a pretty straightforward process: Survey your customers, identify the information you need, and formulate a decision by using rational, objective measurements. The second class is the tough kind. For instance: Should you hire this person? Should you go after this key market? Should you switch jobs? Should you have a kid? These are bet-your-life decisions for which there's no obvious right or wrong answer - and no way of gathering objective information.

To tackle decisions of either class, I first kick into a talkative mode. I ask everybody I know to give me an opinion. I get different perspectives - and I listen to them. I also listen to that thing called intuition. Some people warn against that approach. But there's a kind of processing that happens in a far deeper place than logical processing does. Intuition offers a way to integrate and synthesize, to weigh and balance information. If I have to make a big decision, I listen to what others think. But ultimately, I listen to my intuition. I postpone a decision until I wake up one morning and know where my gut is going.

Deborah Triant was president and CEO of Sitka Corp., a subsidiary of Sun Microsystems, before she joined Adobe Systems as president of marketing in 1993. In 1995, she left Adobe to head Check Point, a network-security and traffic-management software company.

Roger Rainbow

Nothing can paralyze a decision-making process more than uncertainty can. The big decisions that have failed at Shell didn't fail because of our operations or because of project management; they failed because we misunderstood the external world. That's why, when we're on the verge of a big decision, we do scenario planning. A scenario is valuable because it's a plausible, coherent story that we can use to articulate why we want to do something and which issues to factor into the decision-making process.

Everyone has two things in mind when approaching a big decision. The first thing is a scenario - a view of how the world will turn out. The second thing is an objective or a strategy. A good decision-making process marries those two things.

Decisions fall into three categories. With the first category, you know a lot. Take a plant that's been operating for 20 years. You know what makes it succeed or fail, and the decisions you take regarding it tend to be fairly straightforward. They may be hard to implement, but they're simple to make.

With the second category, you know something but not everything. This is where scenario planning helps. For instance, if we're trying to decide whether to invest in an oil field in Russia, we talk about which factors are uncertain and why. What has to happen in order for this investment to succeed? What could go wrong? What would the consequences be? Are any of those consequences absolutely catastrophic? If so, how can we guard against them?

With the third category, you know virtually nothing, and you're starting from scratch. This is where intuition comes into play - and where you make truly creative decisions: You're deciding on things that haven't been done before.

Each category of decisions requires different skills and processes. Understand which kind of decision you're facing, and use scenarios to narrow the range of uncertainty.

Roger Rainbow (roger.r.rainbow@si.shell.com) joined Shell in 1970. His team provides analyses of the business environment by preparing long-term scenarios that consider economic, social, technological, and environmental issues, as well as the long-term supply and demand of energy sources.

Chris Newell

The crux of making good decisions isn't doing things right - it's making sure that you focus on the right things. As citizens of the Information Age, we're overwhelmed with data, reports, facts - much of it noise that we need to filter out before we can figure out what's relevant to a decision. So I've learned to hone my discrimination skills. But if you're exploring something that has no precedent - an idea, a product, a service - you can't rely solely on data to guide you. You have to rely on people too. I've developed a personal advisory council that I consult before tackling a big decision, a group of people who are anchored by similar values - though not necessarily by similar perspectives.

Sometimes making the "wrong" decision is the right thing to do. Last year, I decided to overrun my budget - to continue investing in LearningSpace, a product that Lotus was unsure about investing in. I knew it was the right thing to do, even though I couldn't get the company to agree. When news of my decision surfaced on the radar of some key people, I got hammered. At times, I even doubted my own decision. A year later, LearningSpace has become one of Lotus's most important strategic products.

I made one mistake: I didn't communicate all of the implications of going over budget. Otherwise, I wouldn't change a thing about what I did.

Chris Newell founded the Lotus Institute in 1994. Its mission is to explore ways in which groupware technology intersects with cultural issues. It has developed two applications: TeamRoom, which supports virtual teaming; and LearningSpace, which supports collaborative, distributive learning.

Buz Mertes

By transforming the art of decision making into a science, you can save time, money, and frustration. My team handles tough decisions every day. It has to decide whether we can "cure" a loan for someone who has stopped making payments on it or whether we have to recommend foreclosure because of real financial trouble.

For a long time, we couldn't figure out what allowed some of our reps to make better decisions than others did. We pulled six of our best reps off their jobs and analyzed their decision-making processes for 10 months. We found that these reps had radically different styles. Our challenge was to figure out the critical processes that drove their decisions and then to make sure that those decisions were driven by factual, up-to-date information. We had a goal: to become more consistent in our decision making and to improve our customers' perception of us. We ended up creating a software program, called Loss Mitigation Optimizer, to aid us in that process.

Turning decision making into a science saved us time and money. Before we implemented this technology, we were curing fewer than 30% of our cases. Now we cure more than 50% of them. The decision-making process itself takes 30% to 50% less time per deal. Our savings jumped dramatically - by about $8,000 per case. In the project's first 18 months, these additional savings came to $15 million in net income. Some people think that decisions of this type can't be driven by data. Our results show otherwise.

Buz Mertes joined GE in 1984. Since 1996, Mertes has sponsored a series of projects that have increased the company's net income by more than $20 million.

Jerry Seeman

Senior Director of Officiating National Football League New York, New York

As a referee, I found that the pressure was the same whether I was officiating a preseason game or a Super Bowl. Being on the field is like being in a fishbowl: Everyone - players, coaches, fans, the media - is waiting for your decision. A successful call depends on three things: You must be in position, you must have a deep knowledge of the game, and you must have intense concentration. Remember, no matter what the reaction to your decision may be, you answer to only one thing: your conscience. Above all, when making a decision, you have to keep your cool.

One of the biggest errors that I see officials fall into is making calls too quickly. Each decision has two phases: You read and analyze the play, and then you make the call. But when things happen in a split second, it can be tempting to throw a penalty flag before you know what happened. That's why I tell all of my officials to work in "cruise control." The fans may go crazy, the players and coaches may get excited, but there should be seven people on the field who work every game the same way from beginning to end - and who exude a quiet confidence.

Once you make a decision, you'd better be able to communicate it. I remember having to make a call on a bizarre play in a playoff game between Houston and Cleveland. After an attempted onside kick, the kicking team illegally touched the ball, which then went out of bounds. The rules dictate that the kicking team should kick again. That team again tried an onside kick, and again it illegally touched the ball - but this time, it recovered the ball. I called that the receiving team would gain control of the ball on the spot where it was illegally touched. This was a complicated play: The NFL probably hasn't seen another of its kind in the past 15 years. At first, the fans didn't understand my decision. But I explained to them what the proper ruling was, and they accepted it. I was confident about my knowledge of the game. And I didn't lose my cool.

Jerry Seeman, one of the most celebrated referees in football history, became an NFL line judge in 1975. He was appointed referee in 1979. His responsibilities now cover the league's supervisory staff, as well as regional game observers, collegiate scouts, and all game officials.

Max Bazerman

When making a decision, don't listen to your intuition. Intuition will lead you astray; it's drastically overrated. The desire to follow intuition reflects the mythology of people who don't want to think rationally and systematically. They tell stories about how their intuition guided them through a decision, but they don't understand how or why. Often, when you hear about intuition, what you're really hearing is a justification of luck. Intuition might be fine for the small decisions in life - like what kind of ice cream to buy. But when you get to the biggies, you need a more systematic thought process.

One of the biggest challenges I face is teaching people how to change their decision-making behavior. Everyone makes mistakes and bad decisions. I try to show people that their mistakes are predictable.

Here's an interesting thought experiment: You've got to decide between two things - two executives to hire for a key position, two acquisition targets, two houses that you're thinking about buying.

You go through a systematic process of identifying all of the factors and weighing them for each alternative. You do a little arithmetic, and your analysis says to pick A over B. But your intuition says to pick B over A. So what do you do?

Most people will go on their intuition - which raises the question, Why did you do all that work in the first place? One of these two options is wrong. So postpone your decision until you can determine why your intuition is out of sync with the systematic analysis. That's the purpose of systematic analysis: to inform your intuition, to make you consider all of the options, and to help you make a wise decision.

Max Bazerman (mbazerman@hbs.edu) studies decision making, negotiation, and environmental issues. He is the author of Judgment in Managerial Decision Making (John Wiley & Sons, 1986) and Why Smart People Make Dumb Money Moves (forthcoming from Wiley, April 1999). Bazerman is a visiting professor of business administration at Harvard Business School.

Howard Raiffa

Professor Emeritus Harvard Business School Boston, Massachusetts

One of the biggest pitfalls in decision making is not creating enough alternatives. You can make a decision in order to solve a problem - or you can make a decision in order to exploit an opportunity. To make this point, I use the case study of a businessman named Bill. His dilemma: to sell or not to sell his business. Bill and his partner had struggled for years to build a soundproofing business in Brooklyn, and finally the company was doing well. But Bill was bored; at age 57, he wanted a change. The solution, he thought, was to sell out to his partner, move to California, and start a new business. He framed his problem around how much he should sell his part of the business for - $400,000 (a price that his partner could afford) or something higher.

At my suggestion, Bill went through a rigorous process of reframing his decision. He realized that what he wanted was to spend more time outdoors, to be challenged intellectually, and to minimize stress. In the end, Bill decided to move to California and to establish a branch of the soundproofing business there. That way, he could change his life and also be challenged - but without taking on an enormous amount of risk. The business did well: Eight years later, he sold out to his partner for $1.7 million.

Howard Raiffa is a pioneer in the development of decision analysis, negotiation analysis, and game theory. He is coauthor, with John S. Hammond and Ralph L. Keeney, of Smart Choices: A Practical Guide to Making Better Decisions (Harvard Business School Press, 1998).

A version of this article appeared in the October 1998 issue of Fast Company magazine.

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1Comments

Anna, I couldn't help but reply to your statement that "Stripped down to its essentials, business is about one thing: making decisions." I respectfully wish to point out that business is about one thing, it's called making money.

It seems that we have collectively accepted the understanding/belief that making money sometimes hurts others, but as long as we disguise or hide its true intent, we will ease our own burden of guilt by dressing our intent up, so that it appears to be something other than what it is. Greed.

Far too often in today's business world, the term business has become a license to visit abhorrent things upon others. It seems that most anything is allowed/condoned as long as it "was just business". I knew a person once, who threw his own mother out into the streets (nursing home) after inheriting her home upon the death of his father, all because it made fiscal sense. "It was just business!" he stated emphatically.

If there's one thing I have against today's modern business practices, it's the fact that making money has overshadowed the decency many of us were raised to extent to others.